1. Which of the following would tend to make labor demand MORE

elastic?

a. A decrease in labor's share of total production costs.

b. An increase in the rate at which the marginal product of labor (MP_L) diminishes.

c. Technological change that makes it easier to substitute capital (K) for labor.

d. A decrease in the elasticity of product demand.

2. Cet.p., which of the following would NOT cause a firm's labor demand curve to shift?

a. A change in the price of capital (another production input).

b. An increase in demand for the firm's product.

c. A decrease in the wage.

d. A technological advancement that improves the productivity of labor.

3. An increase in market labor supply usually

a. increases both the wage and the quantity of labor employed.

b. raises the wage and lowers the quantity of labor employed.

c. decreases both the wage and the quantity of labor employed.

d. lowers the wage and raises the quantity of labor employed.

4. Which of the following statements regarding labor supply is TRUE?

a. The unemployment rate is the percentage of the population that is unemployed.

b. The reservation wage is the wage below which a given worker won't accept and/or keep a given job.

c. The labor force participation rate is the percentage of the labor force that is employed.

d. Both b and c are true.

5) According to the kinked demand curve theory of oligopoly, each firm believes that if it raises its product price,

a. it can gain market share from its rivals by earning positive economic profits.

b. the overall product price level in the oligopoly as a whole will rise by the same percentage.

c. rival firms will seize the opportunity to also raise prices and so there will be no gain in market share for the firm that originally raised its price.

d. rival firms will seize the opportunity to gain market share at the expense of the firm that raised its price.

6. Which of the following statements is TRUE?

a. The short run labor demand curve for a firm is that portion of the MP_L curve that lies above the marginal cost of labor.

b. The short run labor demand curve is the marginal revenue product of labor curve.

c. OMIT this! If a firm is a wage-taker in the labor market, the labor demand curve it faces will be perfectly horizontal.

d. Both b and c are TRUE.

7) Cet.p., if the elasticity of product demand increases (in absolute value), then

a. the absolute value of the elasticity of labor demand, e_L, will be < 1.

b. there will be an increase in labor demand.

c. the absolute value of a given percentage increase in wages will result in a larger decrease in the quantity of labor demanded.

d. none of the above statements are true.

8) Which of the following statements is TRUE?

a. In a perfectly competitive market, firms produce a virtually identical product whereas oligopoly is characterized by firms producing close, not perfect, substitutes for each other's products.

b. According to the kinked demand curve theory of oligopoly, if one firm raises its product's price, the other firms will do so as well in order to maximize profits.

c. Since a monopolistically competitive firm has strong competition that in the long run drives down profits to normal, the monopolistically competitive firm is allocatively efficient.

d. All of the above are false.

9) According to our class lecture, the reservation wage is

a. the wage at which a firm maximizes profits.

b. the wage below which a given worker won't accept and/or keep a given job.

c. the going market wage faced by a wage-taking firm in a competitive labor market.

d. the minimum wage level set by the government.

10. Which of the following statements is TRUE?

a. If the marginal revenue product of labor is greater than the wage, then hiring an additional worker will increase total costs by more than it will add to total revenue, and thus the firm should decrease the number of workers to increase profits.

b. For a perfectly competitive firm, profits are maximized in the labor market by choosing that number of workers where the wage equals the product of the MRP_L and the price.

c. If there is a decrease in demand for a product, cet.p., then the labor demand curve for the labor that creates that product will shift left.

d. All of the above are false.

11. Cet.p., which of the following is true for some good X and the labor that produces good X?

a. A decrease in the going wage will increase the supply curve for good X in the output market, resulting in a lower product price and increased Q and, subsequently, increased demand for labor.

b. If demand for good X is relatively inelastic, then the absolute value of the elasticity of demand for labor will be relatively large.

c. If labor's share of the total costs of production decreases, then the elasticity of labor demand will increase.

d. All of the above are false.

12. Which of the following statements is TRUE? If a firm is a buyer of labor in a competitive labor market,

a. the firm's short run labor demand curve is the marginal product of labor curve.

b. the firm maximizes profits by choosing labor where MRP_L is equal to the wage.

c. the labor supply curve facing the firm will be the downward-sloping market labor supply curve.

d. All of the above are false.


13. Which of the following statements is FALSE about monopolistic competition?

a. When economic profits are positive, firms will enter the industry and strong price competition will drive prices down, thus decreasing demand for the original firms’ products.

b. In long run equilibrium, a firm produces output where P > ATC and economic profits are zero.

c. Although each firm has strong competition that in the long run drives down profits to normal, the monopolistically competitive firm is not allocatively efficient.

d. Monopolistic competition is characterized by a large number of firms each producing a somewhat similar product; however, customers perceive important differences between the products of each individual firm.

1) c 2) c 3) d 4) b 5) d 6) b 7) c 8) d 9) b 10) c 11) a 12) b 13) b